Such attractive biotechnologies
Biotechnologies will be able to overtake IT in terms of investment attractiveness
Global technology competition, high demand for high-tech economy products increase the attractiveness of investments in startups and innovative projects. Along with IT, developments in the field of artificial intelligence and the Internet of Things, corporations and foundations are beginning to invest more actively in biotechnology. In 2017 alone, investments in European biotech companies increased by 29% (from 1.93 billion to 2.49 billion euros). At the same time, the USA remains the dominant market for the biotech industry, where the number of venture funds ready to invest in biotech markets is growing.
Why are biotechnologies attractive to investors?
Firstly, it is the most dynamically growing segment of the "new economy" – about 10-12% per year. According to the estimates of the research company Grand View Research, in the next 7 years, the global biotechnology market will grow almost 2 times (from $400 billion in 2018 to $727.1 billion by 2025).
Secondly, companies in the biotech industries demonstrate higher profitability – for example, the net rate of return of biotech venture companies reaches 26.8% (for comparison, venture funds in other industries show profitability at the level of 21.8%).
Thirdly, businesses associated with innovative biotechnological developments and production can increase shareholder profits tens or even hundreds of times in a short period of time. The general index of biotechnological production has been growing since 2010.
The largest and one of the most attractive exchange-traded funds in the biotechnology sector is the iShares Nasdaq Biotechnology ETF (IBB), which owns shares in more than 190 biotech and pharmaceutical companies. iShares Nasdaq Biotechnology ETF (IBB) shares have grown by 75% in 5 years.
But the most important thing is the impact of developments in the field of biotech on the quality of life. An increasing number of countries around the world are striving to join the "80+ club" in terms of life expectancy. Today, Hong Kong is leading in this club with an average life expectancy of 83.73 years, Japan – 83.3 years, Italy – 82.84 years, Switzerland – 82.66 years and Singapore – 82.64 years. The average age is increasing and, as a result, the demand for the latest developments in the field of biotechnology is growing – drugs, vaccines, materials, devices. Today, about 90% of all biotechnological products in the world relate specifically to medicine and healthcare – this is the development of new drugs and vaccines, molecular diagnostics, cellular technologies, editing of the human genome, growing tissues and even whole human organs, the introduction of biopolymers compatible with the cells of the body.
The largest market for biotechnologies, as well as pharmaceuticals, is in the USA. Half of the world's bio-products for healthcare are created here. European countries also demonstrate high indicators. China has become a new "growth point" of biotechnological development in recent years. According to the estimates of the investment bank Chanson & Co, the Chinese are concerned about the state of health, and the population of the country determines the huge capacity of the market of goods in the field of healthcare. Biotechnologies have been identified by the Chinese government as one of the 7 key areas of the country's development, and the state annually invests about $40 billion in biotechnology, which has allowed attracting over $10 billion of venture investments in the industry in recent years alone.
The industry of biotechnological products in Russia is still in the formative stage. The share in the world market is less than one percent. A kind of stop factor is the complexity of bringing products to market, as well as a long development cycle from the testing stage to the launch of a commercial product. But today biotechnologies are defined as a key direction of innovative development of the country's economy along with IT and nanotechnology. According to the "Comprehensive Program for the Development of Biotechnologies in the Russian Federation for the period up to 2020", the share of imports in the consumption of biotech products should be reduced by 50%, and exports should increase by 25 times. The volume of production itself should grow 33 times.
To solve these problems in 2013, the government approved a number of measures: to stimulate demand for products and increase the competitiveness of bio-companies (public procurement, grants, the establishment of new standards and technical regulations), to develop education and research programs, to create regional development clusters.
Certain successes in the regulation of the Russian biotechnology market have increased the interest of investors, including the growth of investments in venture projects at various stages. In 2016, the medical industry became the third in the venture capital market with $12 million, after IT with $14 million and the telecommunications industry with $83 million. Transactions of companies in the market of medical products, according to the FRI, were made for 1.6 billion rubles, which indicates high financial activity. Experts explain this, among other things, by increasing confidence in the biotechnologies of funds with large capital.
"Previously, most of the investments in biotech businesses in our country were at the seed stage of the formation of companies. There is a lower entry threshold – up to $1 million. Today we are seeing the opposite trend – investors are trying to enter the stage of growth and expansion. This suggests that the venture capital market has gradually begun to shift to large participants, and the strategy for entering and exiting investments is more thought out today than five years ago," explained Alexander Weber, chief analyst at Investpoint Group.
However, many successful projects need serious investments at an early stage. A successful start gives you the opportunity to enter new markets. An example is Skolkovo "ExoAthlete". This is a project to create the first domestic medical exoskeleton to help people with disabilities. The device allows you to restore the movement of limbs after a stroke and injuries.
At the beginning of the project, the Moscow Seed Fund and the RVC Biofund invested 16 million rubles in the ExoaThlet company. The funds were used to finalize the first commercial version of the exoskeleton and bring it to the Russian market. Serial production began, followed by a large contract with the Moscow Government and the supply of devices to the capital's clinics. Today, the Russian product is already in demand in the Asian market. Korean investors are investing in its promotion, including in China and Japan. Explanation: these are good products, not inferior to foreign analogues, but 3 times cheaper.
Today, the attention of foreign venture capital market players is also drawn to domestic development companies in the field of biotech and healthcare. For example, last year, the first and largest Russian investment of the RBV Capital venture fund was an investment in the next resident of Skolkovo – AGCT. Investments of 44 million rubles will be spent on the development of innovative genome editing technologies for the treatment of HIV.
Rapid progress in biotechnology has been shown by 3D Bioprinting Solutions. The company uses three-dimensional bioprinting technologies, creating organs from the patient's stem cells. This is a branch of bioengineering, which in the future will allow replacing damaged or old organs. In 2014, the team created Russia's first bioprinter, a year later printed a copy of the mouse thyroid gland, and in 2016, the company signed an agreement with the United Rocket and Space Corporation to supply a bioprinter to the ISS.
Another Russian startup, BioMicroGeli, was noted for having been selected in the TOP 100 out of thousands of applications for participation in the British acceleration program MassChallenge-2016. BicoMicroGeli is also a resident of the Skolkovo Foundation and a graduate of the GenerationS accelerator.
A lot now depends on the expert assessment of startups, taking into account their narrow focus, the Investpoint analyst believes. For the further development of the Russian biotechnology market, the presence and expansion of industry venture funds and investor companies specializing in biomedical topics will play an important role. A special role in this process is assigned to expertise within state development institutions – VEB, RVC, Rusnano, Skolkovo.
"On the horizon of the next 5 years in the development of the medical products market, we should probably expect a certain decline in investment in smartphone applications and other small developments. They do not live up to the expectations set a few years ago. However, we should expect an increase in investments in the segment of more serious technological medical developments, which will undoubtedly demonstrate fairly steady growth," analyst Alexander Weber believes. – It is likely that biotechnologies will be able to overtake the IT industry in terms of attractiveness, which is now a kind of "benchmark" for investors.
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